Contained within [the Budget] are plenty of indications that the coalition will continue looking for more sources of tax.

It is going to consult on bringing in what is known as a general anti-avoidance rule.

This sounds like a very widely worded rule which will give HM Revenue & Customs (HMRC) the power to stop tax avoidance ploys, at their entire discretion.

Taxpayers and advisers will have to wait to see the detail, but it will probably give HMRC the power to stop apparently legal tax dodges without having to get any specific laws changed first.

But that’s tax simplification and the provision of certainty all at the same time. Isn’t that what taxpayers have always demanded? Apparently not. As Accountancy Age reports:

The government has remained committed to its promise to set up an independent board of tax simplification, but questions have been raised about how it will work in practice. Advisers have already warned “simplification” could see reliefs withdrawn. Now the Lib-Cons have gone a step further in publishing “Tax Policy Making: a new approach”, alongside Budget papers, which reinforce previous warnings about a general anti-avoidance rule (GAAR).

These sweeping laws seek to catch the maximum amount of people in thetax net through a principles-based strategy, but the scattergun approach has been criticised by advisers.

“It just removes all certainty in a plan floated as tax simplification in terms of what gets caught,” said Cathy Corns, tax partner at Mercer & Hole.

Corns also voiced concerns about law-abiding taxpayers being caught in the net because of the broad nature of the rules. “They are saying ‚Äòno one can escape tax’,” Corns added.

4 Responses to “The battle over a General Anti-Avoidance Principle begins”

I love anti-avoidance measures, particularly GAARs – excellent for business! Yes, some accountants will not like a GAAR for obvious reasons. However, the majority of decent tax lawyers and accountants do not fear GAARs because they play within the rules. Contrary to what you would have people believe Richard, not all tax lawyers and accountants spend every waking moment dreaming up ideas to cheat the fiscus.

The comment of Saffery Champness is little silly particularly their use of the words “it will probably give HMRC the power to stop apparently legal tax dodges”.

What needs to be realised that a body of jurisprudence will have to underpin any GAAR, which is good news for tax lawyers.

Make no mistake, a GAAR does not guarantee certainty – a view supported by academics and judges. many revenue authorities use it as a weapon to cover their laziness or lack of understanding of the law.

If the government do decide to look seriously look into a GAAR, I hope it is done using a body of all interested parties who will examine carefully how GAARs operate in other countries and how it is likely to operate in the UK legal system.

I’m an accountant – I work for SC as it happens, although I had nothing to do with that quote on the BBC.

I dislike the idea of a GAAR in principle because it makes things much harder. The legislation at present has many many faults, but at least it’s clear in black and white. With some time, and occasionally a cold towel wrapped round your head and a strong drink, you know whether your clients will be taxed or not.

With a GAAR you have to put yourself in the mind of the Government at the time the legislation is enacted – and as shown in Arctic Systems, for example, sometimes even that’s not enough (in the Arctic case the income splitting was specifically foreseen by the Tories in 1991 and considered acceptable – this was supported clearly by Hansard, but didn’t stop HMRC having a crack at it 15 years later). There is simply no certainty with legislation like that, and certainty is a key consideration for clients (and accountants who advise them!).

I share your views as it happens about many of these dreadful “dodges” – I don’t like them at all and don’t recommend them to my clients, partly for moral reasons and, practically, because the Supreme Court seem to shoot them all down these days anyway. It’s just that a GAAR is a sledgehammer to crack a nut and I simply don’t think a GAAR is in the ordinary taxpayer’s interests.

A GAAR exists in Australia and often quoted as a model that UK could adopt. The reason why it’s never happened here though is because for a GAAR to work effectively you need a very transparent clearance system within the revenue authority. This requires a service akin to what the private sector would expect – agreed turnaround times, competent and well qualified staff and a painless and cost free process forthose who want to avail of it. Something that HMRC would never be able to deliver in a million years. So GAAR in the uk would really translate into “blank cheque” for lawyers and accountants